<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
SIX-MONTH DIVIDEND HISTORY 6
ASSET ALLOCATION 6
COUPON DISTRIBUTION 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 15
NOTES TO FINANCIAL STATEMENTS 21
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that we recently kicked off. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.10
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.20
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 3.07% 2.67% 2.52%
-------------------------------------------------------------------------
Six-month total return(2) -1.80% -1.32% 1.52%
-------------------------------------------------------------------------
One-year total return(2) -1.37% -1.18% 1.66%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.30% 4.24% 4.44%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.33% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 8.51% 4.74%(3) 3.98%
-------------------------------------------------------------------------
Commencement date 05/31/84 08/24/92 08/13/93
-------------------------------------------------------------------------
Distribution rate(4) 5.93% 5.47% 5.48%
-------------------------------------------------------------------------
SEC Yield(5) 6.06% 5.55% 5.56%
-------------------------------------------------------------------------
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A Shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A Shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B Shares are calculated without the
effect of the maximum 4% CDSC, charged on certain redemptions made within one
year of purchase and declining to 0% after the sixth year. Returns for Class C
Shares are calculated without the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. If the sales charges were
included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
Shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
Shares of $1 million or more, a CDSC of 1% may be imposed on certain redemptions
made within one year of purchase. Returns for Class B Shares are calculated with
the effect of the maximum 4% CDSC, charged on certain redemptions made within
one year of purchase and declining to 0% after the sixth year. Returns for Class
C Shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase.
(3) The total return reflects the conversion of Class B Shares into Class A
Shares six years after the end of the calendar month in which the shares were
purchased. See footnote 3 in the Notes to Financial Statements for additional
information.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
4
<PAGE> 6
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 2000.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary of
the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions. U.S. Government securities are backed by the
full faith and credit of the U.S. Government, its agencies or instrumentalities.
The government backing applies only to the timely payment of principal and
interest when due on specific securities in the Fund's portfolio, not to shares
of the Fund.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
SIX-MONTH DIVIDEND HISTORY
(for the six months ending June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
1/00 0.073
2/00 0.073
3/00 0.070
4/00 0.070
5/00 0.070
6/00 0.070
</TABLE>
The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.
ASSET ALLOCATION
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
FNMA 58.30 45.10
GNMA 24.20 34.00
FHLMC 8.40 11.90
Treasury Securities 5.20 6.30
REMIC/CMO 3.90 1.90
FHLB 0.00 0.80
</TABLE>
COUPON DISTRIBUTION
(as a percentage of long-term investments--June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
COUPON DISTRIBUTION
-------------------
<S> <C>
Less than 6 1.00
6-6.9 46.20
7-7.9 38.80
8-8.9 6.90
9-9.9 3.70
10 or more 3.40
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN U.S. GOVERNMENT
FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE SIX MONTHS ENDED JUNE 30, 2000. THE TEAM
IS LED BY JOHN R. REYNOLDSON, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND
SINCE JANUARY 2000 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1977. HE IS
JOINED BY PORTFOLIO MANAGERS TED V. MUNDY AND BARBARA M. DOWNEY. THE FOLLOWING
DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED,
AND HOW DID THE FUND PERFORM IN THAT ENVIRONMENT?
A As the year began, investors and consumers were breathing a collective sigh
of relief that the year 2000 computer bug had turned out to be a virtual
nonevent. As stock prices soared, consumers flocked to the shopping malls,
helping to sustain the breakneck pace of economic growth from the year before.
Concerned that the surge in consumer spending and the lowest unemployment
rate in 30 years would ignite inflation, the Federal Reserve Board continued its
policy of raising short-term interest rates. During the six-month reporting
period, the central bank increased the federal funds rate (the benchmark for
credit in the United States) by a total of one percentage point. As the period
ended, there were widespread indications that the pace of economic growth was
slowing.
For the six-month period ended June 30, 2000, the fund generated a total
return of 3.07 percent (Class A shares at net asset value; if the maximum sales
charge of 4.75 percent were included, the return would have been lower). As a
result of recent market activity, current performance may vary from figures
shown. By comparison, the Lehman Brothers Mortgage Index posted a total return
of 4.38 percent for the same period. This broad-based, unmanaged index, which
reflects the general performance of U.S. government and mortgage-backed
securities, does not reflect any commissions or fees that would be paid by an
investor purchasing the securities it represents. Such costs would lower the
performance of the index. It is not possible to invest directly in an index. Of
course, past performance is no guarantee of future results. Please refer to the
chart and footnotes on page 4 for additional fund performance results.
7
<PAGE> 9
Q WHAT HAPPENED TO GOVERNMENT SECURITIES DURING THIS TIME?
A Reflecting expectations that the Fed would raise interest rates further to
cool off the red-hot economy, yields on short-term securities (those most
impacted by Fed policy) moved sharply higher.
On the long end of the curve, Treasury bond yields actually declined in
response to the government's plan to pay down the national debt through the
buyback of longer-term Treasury securities.
The combination of these two forces created a negative (or "inverted") yield
curve, in which yields on short-term securities are higher than those of their
longer-term counterparts. The period also was characterized by a marked
expansion in the yield differential or "spread" between Treasury and
mortgage-backed securities.
Q WHAT WERE YOUR STRATEGIES FOR MANAGING THE PORTFOLIO DURING THIS PERIOD?
A The extraordinary pace of economic activity and wealth creation by the stock
market early in the period signaled trouble for some portions of the bond
market. Although the fund was not optimally positioned for a sharp resurgence of
economic growth, we nonetheless moved quickly to get out of harm's way as the
Fed prepared to slow the overheating economy through higher interest rates.
We moved some assets out of the 5- to 10-year sector of the curve and into
25- to 30-year bonds. We also reduced the fund's exposure to mortgage-backed
securities after spreads had narrowed in late January. In particular, we cut our
holdings of high-coupon mortgage-backed bonds, which stood to bear the full
negative brunt of the pending inversion of the yield curve. Historically,
mortgage-backed bonds tend to underperform Treasury securities during periods of
uncertainty created by the Fed's action.
Beginning in April, the fund returned to a more neutral stance across the
yield curve. This was consistent with our view that higher interest rates and
lower stock prices would eventually slow the U.S. economy.
Q HOW DID THE FUND'S STRATEGIES CONTRIBUTE TO PERFORMANCE?
A The fund's strategy of adding weight to the long end of the yield curve in
January was rewarded as long-term bond prices rose during most of the remainder
of the period. Similarly, our scaling back of holdings in mortgage securities in
January was well-timed, given the narrowing of credit spreads late in that month
and the subsequent expansion of spreads from February through April. In
retrospect, we might have done more to reduce the fund's mortgage holdings. Our
decision to partially reverse these moves late in the period contributed
positively to performance relative to the fund's peers.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND IN THE MONTHS AHEAD?
A After four years of robust growth, there are clear signs that the pace of
economic activity in the United States
8
<PAGE> 10
is moderating. The housing and manufacturing sectors have cooled, and consumer
spending has leveled off from its pace of a year earlier. Importantly, core
inflation (which excludes the volatile food and energy sectors) remains subdued.
Given the mounting evidence of an economic slowdown, the Fed may be ending its
campaign of rate hikes. Barring a sudden resurgence of growth or inflation, we
believe that it is highly unlikely that the Fed will raise interest rates as we
approach the presidential election in November.
With growth slowing and the Fed on the sidelines, we expect the yield curve
to return to a more normal or positive configuration. We have positioned the
fund to benefit from this process by increasing holdings of shorter-term
securities and mortgage-backed bonds later in the period. Overall, we expect the
environment for government securities to improve in coming months, as interest
rates gradually trend lower and market volatility subsides.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings. The
spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and lower-
quality bonds.
10
<PAGE> 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED
SECURITIES 87.5%
$ 24,096 Federal Home Loan Mortgage
Pools......................... 6.000% 09/01/06 $ 22,979,118
59,294 Federal Home Loan
Mortgage Pools................ 6.500 07/01/14 to 10/01/29 56,792,299
24,979 Federal Home Loan
Mortgage Pools................ 7.500 03/01/30 to 05/01/30 24,641,304
16,376 Federal Home Loan Mortgage
Pools......................... 8.500 01/01/16 to 09/01/19 16,746,824
10,511 Federal Home Loan
Mortgage Pools................ 10.000 12/01/08 to 08/01/21 11,078,336
237 Federal Home Loan
Mortgage Pools................ 10.250 11/01/09 250,945
9,532 Federal Home Loan
Mortgage Pools................ 11.000 12/01/01 to 01/01/21 10,336,420
79 Federal Home Loan
Mortgage Pools................ 11.250 09/01/15 85,956
3,517 Federal Home Loan Mortgage
Pools (REMIC) (a)............. 9.250 11/15/05 3,581,074
263,512 Federal National Mortgage
Association Pools (a)......... 6.000 07/01/12 to 09/01/29 244,624,610
310,583 Federal National Mortgage
Association Pools (a)......... 6.500 11/01/13 to 07/01/29 293,510,211
29,000 Federal National Mortgage
Association (a)............... 6.740 08/25/07 27,722,260
198,317 Federal National Mortgage
Association Pools (a)......... 7.000 01/01/01 to 01/01/30 191,664,953
93,352 Federal National Mortgage
Association Pools (a)......... 7.500 12/01/21 to 12/31/99 92,073,438
19,097 Federal National Mortgage
Association Pools............. 8.000 12/01/16 to 12/01/22 19,247,512
22,945 Federal National Mortgage
Association Pools............. 8.500 08/01/14 to 06/01/21 23,409,606
5,970 Federal National Mortgage
Association Pools............. 9.000 03/01/08 to 02/01/21 6,169,742
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES
(CONTINUED)
$ 751 Federal National Mortgage
Association Pools............. 9.500% 05/01/20 $ 777,477
2,856 Federal National Mortgage
Association Pools............. 10.500 06/01/10 to 09/01/19 3,074,733
2,272 Federal National Mortgage
Association Pools............. 11.000 12/01/03 to 11/01/19 2,483,460
602 Federal National Mortgage
Association Pools............. 11.500 12/01/09 to 01/01/16 661,434
29 Federal National Mortgage
Association Pools............. 12.500 03/01/15 32,227
1,052 Federal National Mortgage
Association Pools............. 13.000 06/01/15 1,179,455
10,308 Federal National Mortgage
Association Pools (Grantor
Trust) (a).................... 7.500 01/19/39 10,159,829
26,514 Federal National Mortgage
Association Pools (REMIC)
(Principal Only).............. * 02/25/23 to 02/01/28 16,640,863
19,496 Federal National Mortgage
Association Pools (REMIC)..... 7.050 05/25/18 19,407,100
4,525 Federal National Mortgage
Association Pools (REMIC)
(a)........................... 11.000 01/25/19 4,600,498
47,897 Government National Mortgage
Association Pools (a)......... 6.000 01/15/28 to 04/15/29 44,118,828
93,247 Government National Mortgage
Association Pools (a)......... 6.500 04/15/26 to 06/15/29 88,486,539
97,843 Government National Mortgage
Association Pools (a)......... 7.000 08/15/22 to 07/15/29 95,183,153
66,714 Government National Mortgage
Association Pools............. 7.500 01/15/17 to 01/15/30 66,353,681
28,175 Government National Mortgage
Association Pools............. 8.000 12/15/00 to 08/15/29 28,652,978
20,085 Government National Mortgage
Association Pools............. 8.500 04/15/06 to 06/15/23 20,670,718
31,868 Government National Mortgage
Association Pools............. 9.000 10/15/01 to 08/15/24 33,089,795
18,143 Government National Mortgage
Association Pools............. 9.500 06/15/09 to 11/15/22 18,856,422
5,474 Government National Mortgage
Association Pools............. 10.500 09/15/10 to 02/15/20 5,906,872
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES
(CONTINUED)
$ 893 Government National Mortgage
Association Pools............. 11.000% 03/15/10 to 12/15/18 $ 973,578
1,151 Government National Mortgage
Association Pools............. 11.500 10/15/10 to 03/15/18 1,268,980
830 Government National Mortgage
Association Pools............. 12.000 07/15/11 to 08/15/15 926,488
342 Government National Mortgage
Association Pools............. 12.250 09/15/13 to 07/15/15 384,327
1,039 Government National Mortgage
Association Pools............. 12.500 04/15/10 to 08/15/15 1,172,008
553 Government National Mortgage
Association Pools............. 13.000 01/15/11 to 06/15/15 626,940
21,953 Government National Mortgage
Association Pools (REMIC)..... 7.050 09/16/19 21,897,470
71 Government National Mortgage
Association II Pools.......... 8.500 05/20/02 to 02/20/17 71,934
2,457 Government National Mortgage
Association II Pools.......... 10.500 01/20/14 to 05/20/19 2,629,386
1,597 Government National Mortgage
Association II Pools.......... 11.000 09/20/13 to 08/20/19 1,726,478
712 Government National Mortgage
Association II Pools.......... 11.500 08/20/13 to 07/20/19 778,270
961 Government National Mortgage
Association II Pools.......... 12.000 08/20/13 to 12/20/15 1,059,238
478 Government National Mortgage
Association II Pools.......... 12.500 10/20/13 to 09/20/15 531,203
--------------
TOTAL MORTGAGE-BACKED SECURITIES 87.5%................................. 1,539,296,970
--------------
UNITED STATES GOVERNMENT
AGENCY OBLIGATIONS 4.4%
45,000 Federal National Mortgage
Association (a)............... 7.000 02/15/03 45,014,850
12,000 Federal National Mortgage
Association Pools............. 7.125 03/15/07 to 01/15/30 12,055,480
20,000 Federal National Mortgage
Association Pools............. 7.250 01/15/10 20,207,200
--------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS....................... 77,277,530
--------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UNITED STATES TREASURY
OBLIGATIONS 5.1%
$ 10,000 United States Treasury Bond... 6.375% 08/15/27 $ 10,290,200
40,000 United States Treasury Bond... 7.250 08/15/22 44,924,400
17,500 United States Treasury Bond... 7.500 11/15/16 10,144,440
9,000 United States Treasury Bond... 7.500 11/15/24 8,722,875
7,000 United States Treasury Bond... 8.875 02/15/19 8,995,140
5,000 United States Treasury Bond... 12.000 08/15/13 6,750,050
--------------
TOTAL UNITED STATES TREASURY OBLIGATIONS................................ 89,827,105
--------------
TOTAL LONG-TERM INVESTMENTS 97.0%
(Cost $1,750,662,252)................................................. 1,706,401,605
REPURCHASE AGREEMENT 2.6%
State Street Bank & Trust Co., ($46,850,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 06/30/00, to be
sold on 07/03/00 at $46,875,182)
(Cost $46,850,000).................................................... 46,850,000
--------------
TOTAL INVESTMENTS 99.6%
(Cost $1,797,512,252)................................................. 1,753,251,605
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4%............................. 6,442,120
--------------
NET ASSETS 100.0%...................................................... $1,759,693,725
==============
</TABLE>
* Zero coupon bond
(a) Assets segregated as collateral for open forward transactions, futures or
borrowings of the Fund.
REMIC--Real Estate Mortgage Investment Conduits
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,797,512,252)..................... $1,753,251,605
Cash........................................................ 959
Receivables:
Interest.................................................. 13,420,610
Fund Shares Sold.......................................... 1,748,504
Forward Commitments....................................... 633,955
Fee Income................................................ 602,134
Other....................................................... 354,365
--------------
Total Assets............................................ 1,770,012,132
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 3,883,181
Income Distributions...................................... 3,845,252
Distributor and Affiliates................................ 833,115
Investment Advisory Fee................................... 755,809
Variation Margin on Futures............................... 6,094
Accrued Expenses............................................ 718,468
Trustees' Deferred Compensation and Retirement Plans........ 276,488
--------------
Total Liabilities....................................... 10,318,407
--------------
NET ASSETS.................................................. $1,759,693,725
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $2,128,529,371
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,890,980)
Net Unrealized Depreciation................................. (44,433,985)
Accumulated Net Realized Loss............................... (322,510,681)
--------------
NET ASSETS.................................................. $1,759,693,725
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,652,487,656 and 122,421,061 shares of
beneficial interest issued and outstanding)............. $ 13.50
Maximum sales charge (4.75%* of offering price)......... .67
--------------
Maximum offering price to public........................ $ 14.17
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $88,858,739 and 6,592,334 shares of
beneficial interest issued and outstanding)............. $ 13.48
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $18,347,330 and 1,362,717 shares of
beneficial interest issued and outstanding)............. $ 13.46
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
15
<PAGE> 17
Statement of Operations
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest Income............................................. $ 67,840,000
------------
EXPENSES:
Investment Advisory Fee..................................... 4,760,921
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,669,126, $532,320 and $92,251,
respectively)............................................. 2,293,697
Shareholder Services........................................ 1,415,016
Custody..................................................... 193,345
Legal....................................................... 85,360
Trustees' Fees and Related Expenses......................... 62,447
Other....................................................... 361,392
------------
Total Operating Expenses................................ 9,172,178
Less Credits Earned on Cash Balances.................... 104,321
------------
Net Operating Expenses.................................. 9,067,857
Interest Expense........................................ 797,730
------------
NET INVESTMENT INCOME....................................... $ 57,974,413
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(11,557,909)
Forward Commitments....................................... (6,429,258)
Futures................................................... 1,024,465
------------
Net Realized Loss........................................... (16,962,702)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (56,870,655)
------------
End of the Period:
Investments............................................. (44,260,647)
Forward Commitments..................................... 633,955
Futures................................................. (807,293)
------------
(44,433,985)
------------
Net Unrealized Appreciation During the Period............... 12,436,670
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (4,526,032)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 53,448,381
============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
Statement of Changes in Net Assets
For the Six Months Ended June 30, 2000 and the Year Ended
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 57,974,413 $ 139,696,548
Net Realized Loss................................. (16,962,702) (39,221,846)
Net Unrealized Appreciation/Depreciation During
the Period...................................... 12,436,670 (104,963,939)
-------------- --------------
Change in Net Assets from Operations.............. 53,448,381 (4,489,237)
-------------- --------------
Distributions from Net Investment Income.......... (57,974,413) (141,807,974)
Distributions in Excess of Net Investment
Income.......................................... (50,739) (1,840,241)
-------------- --------------
Total Distributions from and in Excess of Net
Investment income*.............................. (58,025,152) (143,648,215)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (4,576,771) (148,137,452)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 104,303,897 652,849,316
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 31,480,809 76,741,229
Cost of Shares Repurchased........................ (337,574,228) (997,199,101)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... (201,789,522) (267,608,556)
-------------- --------------
TOTAL DECREASE IN NET ASSETS...................... (206,366,293) (415,746,008)
NET ASSETS:
Beginning of the Period........................... 1,966,060,018 2,381,806,026
-------------- --------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $1,890,980 and $1,840,241, respectively)..... $1,759,693,725 $1,966,060,018
============== ==============
* Distributions by Class:
--------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................. $ (54,515,296) $ (130,258,197)
Class B Shares.................................. (2,991,141) (12,244,365)
Class C Shares.................................. (518,715) (1,145,653)
-------------- --------------
$ (58,025,152) $ (143,648,215)
============== ==============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES JUNE 30, -----------------------------------------
2000(A) 1999 1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $ 13.520 $ 14.459 $ 14.624 $ 14.459 $ 14.950
-------- -------- -------- -------- --------
Net Investment Income.......... .426 .899 .941 1.039 1.069
Net Realized and Unrealized
Gain/Loss.................... (.022) (.914) (.127) .158 (.495)
-------- -------- -------- -------- --------
Total from Investment
Operations..................... .404 (.015) .814 1.197 .574
Less Distributions from and in
Excess of Net Investment
Income......................... .426 .924 .979 1.032 1.065
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD......................... $ 13.498 $ 13.520 $ 14.459 $ 14.624 $ 14.459
======== ======== ======== ======== ========
Total Return (b)................. 3.07%* -.11% 5.77% 8.57% 4.10%
Net Assets at End of the Period
(In millions).................. $1,652.5 $1,817.0 $2,079.6 $2,264.8 $2,560.1
Ratio of Operating Expenses to
Average Net Assets (c) (d)..... .95% .91% .90% .90% .90%
Ratio of Interest Expense to
Average Net Assets............. .04% .07% .04% .08% .02%
Ratio of Net Investment Income to
Average Net Assets (c)......... 6.39% 6.50% 6.45% 7.26% 7.38%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions)....... 28%* 112% 82% 104% 64%
</TABLE>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(c) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to Van Kampen's reimbursement of
certain expenses was less than 0.01%.
(d) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended June 30,
2000.
See Notes to Financial Statements
18
<PAGE> 20
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES JUNE 30, ----------------------------------------
2000(A) 1999 1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $13.499 $14.440 $14.609 $14.447 $14.948
------- ------- ------- ------- -------
Net Investment Income............ .376 .750 .816 .916 .947
Net Realized and Unrealized
Gain/Loss...................... (.023) (.880) (.121) .162 (.494)
------- ------- ------- ------- -------
Total from Investment Operations... .353 (.130) .695 1.078 .453
Less Distributions from and in
Excess of Net Investment
Income........................... .373 .811 .864 .916 .954
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $13.479 $13.499 $14.440 $14.609 $14.447
======= ======= ======= ======= =======
Total Return (b)................... 2.67%* -.92% 4.87% 7.71% 3.24%
Net Assets at End of the Period (In
millions)........................ $ 88.9 $ 130.4 $ 284.2 $ 359.0 $ 414.8
Ratio of Operating Expenses to
Average Net Assets (c) (d)....... 1.75% 1.71% 1.72% 1.72% 1.73%
Ratio of Interest Expense to
Average Net Assets............... .04% .07% .04% .08% .02%
Ratio of Net Investment Income to
Average Net Assets (c)........... 5.58% 5.73% 5.63% 6.44% 6.55%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions)......... 28%* 112% 82% 104% 64%
</TABLE>
* Non-Annualized.
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the sixth year. If the sales charge was
included, total returns would be lower.
(c) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to Van Kampen's reimbursement of
certain expenses was less than 0.01%.
(d) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended June 30,
2000.
See Notes to Financial Statements
19
<PAGE> 21
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES JUNE 30, -------------------------------------
2000(A) 1999 1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $13.495 $14.436 $14.608 $14.448 $14.948
------- ------- ------- ------- -------
Net Investment Income............ .372 .784 .822 .910 .943
Net Realized and Unrealized
Gain/Loss...................... (.030) (.914) (.130) .166 (.489)
------- ------- ------- ------- -------
Total from Investment Operations... .342 (.130) .692 1.076 .454
Less Distributions from and in
Excess of Net Investment
Income........................... .373 .811 .864 .916 .954
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $13.464 $13.495 $14.436 $14.608 $14.448
======= ======= ======= ======= =======
Total Return (b)................... 2.52%* -.92% 4.87% 7.71% 3.24%
Net Assets at End of the Period (In
millions)........................ $ 18.3 $ 19.3 $ 18.0 $ 14.2 $ 14.3
Ratio of Operating Expenses to
Average Net Assets (c) (d)....... 1.74% 1.72% 1.72% 1.72% 1.72%
Ratio of Interest Expense to
Average Net Assets............... .04% .07% .04% .08% .02%
Ratio of Net Investment Income to
Average Net Assets (c)........... 5.58% 5.66% 5.63% 6.41% 6.55%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions)......... 28%* 112% 82% 104% 64%
</TABLE>
* Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(c) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to Van Kampen's reimbursement of
certain expenses was less than 0.01%.
(d) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended June 30,
2000.
See Notes to Financial Statements
20
<PAGE> 22
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen U.S. Government Fund (the "Fund") is organized as a series of Van
Kampen U.S. Government Trust (the "Trust"), a Delaware business trust and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide a high level of current income, with liquidity and safety of
principal. The Fund commenced investment operations on May 31, 1984. The
distribution of the Fund's Class B and Class C Shares commenced on August 24,
1992 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. If such
valuations are not available, then estimates are determined from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due to the Fund.
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
The Fund trades certain securities under the terms of forward commitments,
whereby the settlement for payment and delivery occurs at a specified future
date. Forward commitments are privately negotiated transactions between the Fund
and dealers. Upon executing a forward commitment and during the period of
obligation, the Fund maintains collateral of cash or securities in a segregated
account with its custodian in an amount sufficient to relieve the obligation. If
the intent of the Fund is to accept delivery of a security traded under a
forward purchase commitment, the commitment is recorded as a long-term purchase.
For forward purchase commitments for which security settlement is not intended
by the Fund, changes in the value of the commitment are recognized by marking
the commitment to market on a daily basis. During the term of the commitment,
the Fund may resell the forward commitment and enter into a new forward
commitment, the effect of which is to extend the settlement date. In connection
with this extension, the Fund receives a fee, which is included in fee income on
the date of the extension. In addition, the Fund may occasionally close such
forward commitments prior to delivery.
The Fund may also invest in reverse repurchase agreements. In a reverse
repurchase agreement, the Fund sells securities and agrees to repurchase them at
a mutually agreed upon date and price. During the reverse repurchase agreement
period, the Fund continues to receive principal and interest payments on these
securities but pays interest to the counter-party based upon a short-term
interest rate. The average daily balance of reverse repurchase agreements during
the period was approximately $23.4 million with an average interest rate of
2.89%.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Original
issue discount is accreted over the expected life of each applicable security.
Income and expenses of the Fund are allocated on a pro rata basis to each class
of shares, except for distribution and service fees and transfer agency costs
which are unique to each class of shares.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At December 31, 1999, the Fund had an accumulated capital loss carryforward for
tax purposes of $303,209,426 which will expire between December 31, 2000 and
December 31, 2007. Of this amount, $910,777 will expire on December 31, 2000.
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
Net realized gains or losses may differ for financial reporting and tax purposes
primarily as a result of the deferral of losses relating to wash sale
transactions.
At June 30, 2000, for federal income tax purposes the cost of long- and
short-term investments is $1,797,512,252, the aggregate gross unrealized
appreciation is $9,792,959 and the aggregate gross unrealized depreciation is
$54,053,606, resulting in net unrealized depreciation on long- and short-term
investments of $44,260,647.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, the amount of distributable net investment income may
differ between book and federal income tax purposes for a particular period.
These differences are temporary in nature, but may result in distributions in
excess of net investment income for certain periods.
F. EXPENSE REDUCTIONS During the six months ended June 30, 2000, the Fund's
custody fee was reduced by $104,321 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .550 of 1%
Next $500 million........................................... .525 of 1%
Next $2 billion............................................. .500 of 1%
Next $2 billion............................................. .475 of 1%
Next $2 billion............................................. .450 of 1%
Next $2 billion............................................. .425 of 1%
Over $9 billion............................................. .400 of 1%
</TABLE>
For the six months ended June 30, 2000, the Fund recognized expenses of
approximately $50,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
For the six months ended June 30, 2000, the Fund recognized expenses of
approximately $80,500 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the six months ended June 30,
2000, the Fund recognized expenses of approximately $963,400. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At June 30, 2000, capital aggregated $1,963,249,298, $144,629,368 and
$20,650,705 for Classes A, B and C, respectively. For the six months ended June
30, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................. 6,749,421 $ 91,273,299
Class B............................................. 612,777 8,276,934
Class C............................................. 354,467 4,753,664
----------- -------------
Total Sales........................................... 7,716,665 $ 104,303,897
=========== =============
Dividend Reinvestment:
Class A............................................. 2,303,720 $ 29,608,827
Class B............................................. 125,099 1,595,777
Class C............................................. 21,257 276,205
----------- -------------
Total Dividend Reinvestment........................... 2,450,076 $ 31,480,809
=========== =============
</TABLE>
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Repurchases:
Class A............................................. (20,987,249) $(280,805,741)
Class B............................................. (3,803,403) (50,891,717)
Class C............................................. (439,222) (5,876,770)
----------- -------------
Total Repurchases..................................... (25,229,874) $(337,574,228)
=========== =============
</TABLE>
At December 31, 1999, capital aggregated $2,123,172,913, $185,648,374 and
$21,497,606 for Classes A, B and C, respectively. For the year ended December
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................. 41,019,965 $ 579,248,096
Class B............................................. 2,312,115 32,424,964
Class C............................................. 2,895,380 41,176,256
----------- -------------
Total Sales........................................... 46,227,460 $ 652,849,316
=========== =============
Dividend Reinvestment:
Class A............................................. 5,012,768 $ 69,919,838
Class B............................................. 444,278 6,205,393
Class C............................................. 44,258 615,998
----------- -------------
Total Dividend Reinvestment........................... 5,501,304 $ 76,741,229
=========== =============
Repurchases:
Class A............................................. (55,503,423) $(779,758,069)
Class B............................................. (12,781,310) (178,274,905)
Class C............................................. (2,757,904) (39,166,127)
----------- -------------
Total Repurchases..................................... (71,042,637) $(997,199,101)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended June 30, 2000 and the year ended December 31, 1999, 1,772,765 and
8,143,395
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
Class B shares converted to Class A shares, respectively and are shown in the
above tables as sales of Class A shares and repurchases of Class B shares. Class
C shares purchased before January 1, 1997, and any dividend reinvestment plan
Class C shares received thereon, automatically convert to Class A shares ten
years after the end of the calendar month in which such shares were purchased.
Class C shares purchased on or after January 1, 1997 do not possess a conversion
feature. For the six months ended June 30, 2000 and the year ended December 31,
1999, no Class C shares converted to Class A shares. The CDSC will be imposed on
most redemptions made within six years of the purchase for Class B and one year
of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALE CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First..................................................... 4.00% 1.00%
Second.................................................... 3.75% None
Third..................................................... 3.50% None
Fourth.................................................... 2.50% None
Fifth..................................................... 1.50% None
Sixth..................................................... 1.00% None
Seventh and Thereafter.................................... None None
</TABLE>
For the six months ended June 30, 2000, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $35,600 and CDSC on redeemed shares of approximately $240,300.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales on investments,
including principal paydowns, excluding forward commitment transactions and
short-term investments, were $490,345,909 and $719,346,759, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a futures contract or forward commitment. In
these instances the recognition of gain or loss is postponed until the disposal
of the security underlying the option, futures or forward contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. There were no transactions in options for the
six months ended June 30, 2000.
B. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in exchange traded futures on U.S. Treasury Bonds and
Notes and typically closes the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts, for the six months ended June 30, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at December 31, 1999............................ 798
Futures Opened.............................................. 3,790
Futures Closed.............................................. (3,778)
------
Outstanding at June 30, 2000................................ 810
======
</TABLE>
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
The futures contracts outstanding as of June 30, 2000, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
Long Contracts:
US Treasury Note 5 Year Futures, Sept. 2000
(Current Notional Value $99,015 per contract).......... 280 $ 84,713
Short Contracts:
US Treasury Bond 30 Year Futures, Sept. 2000
(Current Notional Value $97,343 per contract).......... 80 39,360
US Treasury Note 10 Year Futures, Sept. 2000
(Current Notional Value $98,484 per contract).......... 450 (931,366)
--- ----------
810 $ (807,293)
=== ==========
</TABLE>
C. FORWARD COMMITMENTS The Fund trades certain securities under the terms of
forward commitments, as described in Note 1. The change in value of these
securities is reflected as a component of unrealized appreciation/depreciation
on forward commitments. The Fund has segregated assets for these open
commitments totaling $329.0 million.
The following forward purchase commitments were outstanding as of June 30,
2000:
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT SETTLEMENT CURRENT APPRECIATION/
(000) DESCRIPTION DATE VALUE DEPRECIATION
<C> <S> <C> <C> <C>
$82,000 FNMA, 7.00% coupon.............. 07/20/00 $ 80,437,080 $358,955
30,000 FNMA, 7.50% coupon.............. 07/20/00 29,887,500 75,000
20,000 FHLMC Gold, 7.50% coupon........ 07/20/00 19,937,600 56,350
40,000 FHLMC Gold, 8.00% coupon........ 07/17/00 40,212,400 143,650
------------ --------
$170,474,580 $633,955
============ ========
</TABLE>
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to the settlement of the obligation. In doing so, the Fund realizes a gain or
loss on the transaction at the time the forward commitment is closed. Risks may
result as a result of the potential inability of counterparties to meet the
terms of their contracts. There were no closed but unsettled forward commitments
open as of June 30, 2000.
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
6. MORTGAGE BACKED SECURITIES
A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies--Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC).
A Collateralized Mortgage Obligation (CMO) is a bond which is collateralized
by a pool of MBS's. The Fund also invests in REMIC's (Real Estate Mortgage
Investment Conduit) which are simply another form of CMO. These MBS pools are
divided into classes or tranches with each class having its own characteristics.
For instance, a PAC (Planned Amortization Class) is a specific class of
mortgages which over its life will generally have the most stable cash flows and
the lowest prepayment risk.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 2000, are payments retained by Van Kampen of
approximately $527,900.
8. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rata percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
29
<PAGE> 31
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
Central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
30
<PAGE> 32
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN U.S. GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors. KPMG LLP ceased being the Fund's
independent auditors effective April 14, 2000. The cessation of the
client-auditor relationship between the Fund and KPMG was based solely on a
possible future business relationship by KPMG with an affiliate of the
Fund's investment adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charges on
shares of the Fund, and other pertinent
data. After November 30, 2000, the report, if used with prospective investors,
must be accompanied by a quarterly performance update.
31
<PAGE> 33
YOUR NOTES
32
